5 strategies to make you a successful Mutual Fund Investor

Aug 26, 2018 / Pratibha Chakrabarty | 94 Downloaded | 8633 Viewed | |
5 strategies to make you a successful Mutual Fund Investor
Picture courtesy - UNSPLASH

Mutual Funds are a form of investment wherein investors with similar financial objectives invest the money in equities, bonds and other securities. It is a pool of money from various investors which is professionally managed by fund managers and invested in diverse sector or companies as per the mutual fund scheme mandate.

Mutual Funds are a good investment option for the common man as they are easily accessible, affordable and transparent and a lot of investment options available suiting the investor’s risk appetite and investment objective.

There are two ways of investing in Mutual Funds –By way of lumpsum (One-time) or through SIPs (Systematic Investment Plans). The investor can choose the way of investing depending upon his investment requirement / long term goals and the cash flow position.

For example – 1) If the investor has lump sum investible surplus in hand he/she can invest in one go in the scheme of their choice 2) If the investor has regular surpluses after meeting his monthly expenses, the same can be invested in mutual funds through SIPs 3) The investor can choose both the ways, again depending on his/her investment needs/ cash flow position. In short, mutual funds are extremely flexible investment option.

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Over and above the flexibility, the investor can choose mutual fund schemes on the basis of financial objectives and / or risk taking appetite. Suppose, if a person can take moderate risk while investing, then, he/she can opt for large cap equity funds or hybrid aggressive funds. If he/she can tolerate high risk then diversified/ multi-cap mutual Funds or mid cap funds are suitable option provided the investment horizon is long. Similarly, if the time horizon for investment is really short, like a few days or months, then the investor can go with schemes like liquid funds or ultra-short duration funds.

There are many mutual fund categories and options therein, but it is not complicated if the investor understands the basics of how mutual funds work. Here is an example of how your investment corpus can grow with mutual funds - Suppose, you start a monthly SIP of INR 5,000 in an equity mutual fund and continue it for a period of 10 years, your estimated SIP Corpus at the end of this time will be over INR11.60 Lakhs against a total invested amount of INR 6 Lakhs (based on assumed annual return of 12%).

The above is an example of how your investments can grow at an estimated rate of annual returns of 12%. However, this annual estimated rate would differ based on how the equity market is doing during your investment period and also upon the category of mutual funds selected. The idea of investing in mutual funds is to invest for the long term which in turn helps you meet your long and short term goals while allowing you to invest in funds which suits your risk profile and investment horizon. However, we will discuss today 5 strategies that one can follow to become a successful Mutual Fund Investor.

Comparing various mutual funds and categories

It is always important to compare various funds in different mutual fund categories before making an absolute investment decision. This is important in order to understand the concept of mutual funds with depth and also to gauge the kind of investment one is going to make. One can compare the top performing mutual funds of various categories during a particular period of time and then, depending on one’s risk taking appetite as well as various investment needs, a decision to invest in the right category of funds can be taken.

Read this – how to select best mutual funds: lesson from football

Comparing the funds and picking the right ones from the category suitable to you is the basic yet most important aspect of mutual fund investing. While picking the right funds, you must assess are your risk averse and you must understand your risk capacity.

But the question is how to compare funds? It is not that difficult though! Visit any mutual fund research website including ours https://www.advisorkhoj.com/mutual-funds-research and check if the funds chosen by you have been able to beat the benchmark and category average returns in the past few years. Funds which are beating the scheme benchmark consistently over a period of time are the ones you can consider for investing.

Did you know how to select the best performing mutual funds and importance of past performance

Understanding your financial goals

People have various financial goals like buying a house, car, children’s education, medical expenses and retirement etc. Investment in Mutual Funds will be worthwhile only when money is invested keeping these goals in mind.

Suppose, you want to have a corpus of more than 1 Crore INR after a period of 20 years, for completing a definite plan, then, you need to start a SIP or invest lumpsum amount in Mutual Funds in a similar manner to reach that particular goal. If that is not done, investments happen without a purpose and you will never know when to stop or how much to invest etc.

Did you know how to select mutual funds based on your investment needs

Like in this case, to reach the goal of INR 1 Crore after 20 years, you need to invest only INR 10,300 through monthly SIPs (assumed 12% annual returns) – Please check this https://www.advisorkhoj.com/tools-and-calculators/become-a-crorepati. However, if you were to invest in lump sum to reach this goal, the one-time investment amount would be Rs 10.37 Lakhs https://www.advisorkhoj.com/tools-and-calculators/lumpsum-target-calculator

While understanding your goals and investing for each of these goals provides a direction to your investments, did you know the 5 reasons why you should invest in mutual funds.

Monitoring your mutual fund investments

We discussed why it is important to compare various funds and choose the right ones for meeting your various investment goals in order to become a successful mutual fund investor. However, what happens if your selected funds are not performing well and short of meeting your future goals? How to know this?

It is easy actually! All you have to do is monitor your investments regularly and review the respective fund performances annually. This helps you know how the funds chosen by you are performing vis-a-vis its peers and the category. During the annual review, if you find that your selected scheme is not able to beat even the category average returns, then you need to review your investment in the said fund and change with a better performing one. If you have a mutual fund advisor, take his/her help in the review and discuss the way out.

You must read here returns expectations from mutual funds

Remember, this is imperative because the performance of various funds changes over time due to reasons such as fall or rise in markets, change in fund manager or change in the scheme investment objective etc. You need to understand that the job of investing is not over right after making an investment. Continuous monitoring is required in order to make sure that the funds are performing on the expected lines and that the same is aligned for meeting your investment goals.

Restructuring the mutual fund Portfolio

Once you have reviewed your mutual fund investments, it is understandable where some changes have to be made in order to reach financial goals on time. Then, steps need to be taken for restructuring of these investments like shifting to a better performing fund during that particular time period, realigning of funds according to asset allocation strategy, changing funds based on risk taking appetite. If this is done at least annually, then chances are that you will not go wrong with your investments.

Here you make like to know how to get more returns from your mutual fund investments

However, two things need to be considered while restructuring the portfolio – 1) what are the tax implications? How much is the tax outgo and what is the post-tax return if you change one fund with the other 2) Are you able to continue with the same risk profile as it was when you started? Chances are that with age your risk taking ability might get lower, therefore, while replacing the fund you must consider this aspect too!

To know more about asset allocation, read this

Consistency and discipline

The key to becoming a successful Mutual Fund investor is to remain consistent with your investments. Suppose, you opt for a monthly SIP (Systematic Investment Plan) of INR 5000, you need to make sure that this amount is present in your bank account on the specified date for the SIP to be processed; otherwise you will miss the SIP installment. If you are investing a particular amount in lumpsum, make sure that you link it with a future goal in mind.

You need to be consistent with the investment plan you made while starting and be consistent with what was decided while remaining disciplined.

Did you know about SIPs and its benefits? Also read, which are the best dates to do mutual fund SIPs


Mutual Funds is an easy to understand and the most effective investment tool for the common man once they come to know of the basics of it. It is the most ideal investment option due to various advantages. There are no set rules for investing but once one becomes consistent, disciplined and regular with investments along with some professional help from advisors, financial goals can definitely be accomplished by investing in mutual funds.

This article sums up 5 simple mutual fund investment strategies by following which you can become a good Mutual Fund investor. However we also suggest you to know the 10 commandments of mutual fund investing

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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